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Financial Regulation and Corporate Crime: Sifting through the ashes of the financial crisis

Do our financial and economic regulators have adequate enforcement powers or do their powers need to be supplemented by civil financial sanctions? Does our criminal law deal sufficiently with serious wrongdoing by corporate bodies or are there gaps that should be addressed?

These are some of the questions asked in an Issues Paper recently published by the Law Reform Commission. The Commission reviewed a number of reports published in the wake of the 2008 financial crisis and used the key findings of these reports to pose a number of questions about the adequacy of our criminal and regulatory laws.

The paper covers 12 areas and calls for views on a number of questions arising in each area. The areas covered include the:

criminal liability of corporate bodies;

personal liability of corporate officers;

possible introduction of an offence of reckless trading; and

possible introduction of a general defence of due diligence.

ATTRIBUTING CRIMINAL LIABILITY TO CORPORATE BODIES

Imposing criminal liability on corporate bodies for criminal offences has always proved difficult as the principles of criminal liability were historically developed with human beings in mind. The Commission is now looking at what precise test should be used to determine if criminal liability ought to be imposed on a corporate body in particular circumstances.

The Commission has identified three approaches used in other countries with similar legal systems to our own and will assess which approach can best be applied in the Irish context:

Vicarious liability: Under this approach, a corporate body, as an employer, can be held criminally responsible for the actions of employees carried out during the course of business.

The identification doctrine: This attributes criminal liability directly to directors, senior management or majority shareholders who are seen as “the directing mind and will” of the corporate body.

An organisational liability model: This holds an organisation criminally liable where it fails to implement proper policies and procedures which could have prevented or deterred the criminal offence.

PERSONAL LIABILITY OF CORPORATE OFFICERS

Currently, only persons holding influential positions within organisations can be held criminally liable for offences committed by corporate bodies. The Commission is asking whether a broader approach should be taken to determining the criminal liability of directors, managers and other senior corporate officers.

OFFENCE OF RECKLESS TRADING

Reckless trading is not currently a criminal offence in Ireland, though civil liability can be imposed on directors for reckless trading. The Oireachtas (Irish parliament) considered criminalising reckless trading as far back as the 1980s, but no offence was ever introduced. In the wake of the global financial crisis, the Commission is re-examining this question.

The question now being asked is whether conduct which a person is aware involves taking an unjustifiable risk, resulting in harm to others, should be criminalised?

In the United Kingdom a criminal offence of recklessness relating to a decision causing a financial institution to fail was introduced in 2013. A person found guilty of this offence is liable on summary conviction to a maximum term of imprisonment of 12 months or, if convicted on indictment, to a maximum term of imprisonment of 7 years and/or a fine.

DEFENCE OF DUE DILIGENCE

If a person takes legal advice or consults with an expert or regulator, should this provide protection from criminal prosecution? In the Issues Paper, the Commission considers if, and in what circumstances, a defence of due diligence should be open to corporate offenders. If this defence is adopted, a corporate officer who can demonstrate that he acted with due care and took positive measures to prevent the offence occurring would have a defence to criminal liability.

The Commission, as part of its consultation process, is seeking written contributions from persons or bodies interested in the issues raised in the Issues Paper. The deadline for making submissions is Wednesday, 30 March 2016. Read more about how to make a submission here.

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